BASRAH: OLD CONTRACTUAL OBLIGATIONS ADD TO NEW PROVINCIAL

UNCLAS BASRAH 000029

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV EFIN IZ
SUBJECT: BASRAH: OLD CONTRACTUAL OBLIGATIONS ADD TO NEW PROVINCIAL
GOVERNMENT'S FINANCIAL WOES


1. (SBU) Summary: The $201 million in GOI Accelerated
Reconstruction Development Program (ARDP) funds allocated to
Basra for 2009 will fall far short of the province's obligations
for 2008. The new governor's decision to honor without further
review the contractual obligations made by the previous
Provincial Council has created an additional debt of $290
million. The government's decision, viewed as an effort to build
faith in local government institutions, may adversely affect
reconstruction and development plans. End summary.

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Basra Budget Shortfall
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2. (SBU) In 2008, the Basra Provincial Government had nearly
$680 million in obligations for various reconstruction and
development projects. This sum included unspent portions of 2007
ARDP funds, the emergency budget from Operation
Charge-of-the-Knights, and supplemental appropriations from oil
revenues provided late 2008. The provincial government executed
this entire budget, a demonstration of its capacity for drawing
up contracts and making tender announcements under existing
guidelines. Not all obligated funds were disbursed, however;
outstanding obligations from 2008 amount to about $290 million.


3. (SBU) Unspent obligated funds will create a budget shortfall
in Basra due to the lack of a provision in the budget law to
roll unspent portions of the 2008 budget into 2009. (Although
there is an exception for contracts with unliquidated letters of
credit requiring no additional cash outlay, it will have little
impact on Basra.) Provinces such as Basra that failed to fully
implement priority projects and disburse funds in the previous
year were particularly affected by the lack of roll-over.
Basra's problems will be exacerbated further by the cut in ARDP
funds. The $201 million ARDP allocation represents 62 percent of
last year's total - a $123 million reduction.


4. (SBU) Shiltagh's inherited debt is largely due to last-minute
wrangling by the outgoing provincial government, which
re-submitted the validated list of projects for funding against
the 2009 ARDP allocation before the new government was seated.
After taking office and considering the former Provincial
Council's recommendations, Governor Shiltagh announced his
intention to honor the previous administration's obligations.
Consequently, the new administration's priorities regarding new
projects will have to wait until additional resources are
available.

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Comment
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5. (SBU) The current budget shortfall is not unique to Basra.
The inability to apply unspent 2008 funds to this year's budget
has had profound consequences across the country. Although
reconstruction momentum has stalled, local governments can
economize by improving resource management and at the same time
allow ample opportunity to start working on the new Provincial
Development Strategy and aligning their PDS in the overall GOI's
national development goals.


6. (SBU) Comment, continued: Governor Shiltagh's decision to
continue all contracts surprised some local observers who
believe many of the ARDP projects were poorly thought out,
politically motivated, or both. The governor's lack of criticism
for his predecessor and his refusal to take political advantage
of the situation by developing new projects appear to follow the
same strategy taken by new Maliki-affiliated governors in Dhi
Qar and Maysan. This move, combined with designation of lesser
Basra provincial executive positions for parties excluded from
the governing coalition but prominent in the previous PC (i.e.
ISCI, Sadrists) may reflect inter-Shi'a reconciliation efforts
that are part of a larger political strategy directed by Prime
Minister Maliki, who has close ties with the governor and
Provincial Council. End comment.

BOCCHETTI